Funding Failure – Reasonable Endeavours Clause Not in Point

When demand for flats dried up for a property developer, it became unable to meet the required level of pre-sales on the development to secure continued financing for the project. It then suspended work on the commercial part of the development, which it had agreed to let to another company on a long lease.



When the building work began to run seriously behind schedule, the potential lessee sought to enforce a ‘reasonable endeavours’ clause in its agreement with the developer to make it progress the development. The clause provided that the developer would ‘use its reasonable endeavours to procure completion of the Landlord’s Works by the Target Date or as soon as reasonably possible thereafter’.



The prospective lessee argued that the failure to meet the target dates was a breach of contract. The developer argued that its failure to complete due to funding problems was not a breach of contract because it had used reasonable endeavours to procure the necessary finance.



The court accepted that the developer had used reasonable endeavours to secure finance, but considered that the relevant clause did not ‘extend to matters antecedent or extraneous to the carrying out of the work, such as having the financial resources to do the work’. The developer had not therefore satisfied the reasonable endeavours clause and was in breach of contract.



The practical implications of this case may be that, in similar circumstances, it would be wise to include inability to secure development finance specifically as one of the matters which does not cause a breach of contract.